PR 15-1A Debt investment transactions, available-for-sale valuation Soto Year 1.

Question

PR 15-1A Debt investment transactions, available-for-sale valuation Soto Year 1. The following transactions relate OBJ. 2, 4 Industries Inc. is an athletic footware company that began operations on January 1, o debt investments acquired by Soto Industries Inc., which has a fiscal year ending on December 31: Year 1 Apr. 1, Purchased $100,000 of Welch Co. 6%, 15-year bonds at their face amount plus accrued interest of $500. The bonds pay interest semiannually on March 1 and September 1. Purchased $210,000 of Bailey 4%, 10-year bonds at their face amount plus accrued interest of $700. The bonds pay interest semiannually on May 1 and November 1. Received semiannual interest on the Welch Co. bonds. Sold $40,000 of Welch Co. bonds at 97 plus accrued interest of $200. Received semiannual interest on the Bailey bonds. June 1, Sept. 1. 30. 1. Nov. Dec. 31. Accrued $1,200 interest on the Welch Co. bonds. 31. Accrued $1,400 interest on the Bailey bonds. Year 2 Mar. 1. Received semiannual interest on the Welch Co. bonds. May 1. Received semiannual interest on the Bailey bonds. Instructions 1. Journalize the entries to record these transactions. 2. If the bond portfolio is classified as available for sale, what impact would this have on financial statement disclosure?

Explanation / Answer

1) Journal Entries :-

2) Bonds are Investments, Bonds Shown as available for sale securities in balance sheet as current assets.

Date Particulars Debit($) Credit($) Apr. 1 6% bonds A/c Dr. 100000 Accrued Interest Receivable A/c Dr. 500 To Cash A/c 100500 Jun. 1 4% Bonds A/c Dr. 210000 Accrued interest receivable A/c Dr. 700 To Cash A/c 210700 sep. 1 Cash A/c Dr. 3000 To Accrued Interest Receivable A/c 500 To Interest Revenue A/c 2500 Sep 30 Cash A/c Dr. 39000 Loss on sale of investment A/c 1200 To Interest Revenue A/c 200 To 6% Bonds A/c 40000 Nov. 1 Cash A/c Dr. 4200 To Accrued interest receivable A/c 700 To Interest Revenue A/c 3500 Dec. 31 Accrued interest receivable A/c Dr. 1200 To Interest Revenue A/c 1200 Dec. 31 Accrued interest receivable A/c Dr. 1400 To Interest Revenue A/c 1400 Mar. 1 Cash A/c Dr. 1800 To Accrued Interest Receivable A/c 1200 To Interest Revenue A/c 600 May. 1 Cash A/c Dr. 4200 To Accured interest receivable A/c 1400 To Interest Revenue A/c 2800

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